Steps to Home Purchase
Buying a house is generally the biggest investment that the average person will make in his or her life. Following are some important things to consider when purchasing a home.
Should I Buy A Home?
In addition to providing you with a place to live, owning a home can provide you with a possible investment for many reasons including potential equity growth, the stability that comes with having ownership in a community, and possible tax advantages.
Renting might make more sense for a mobile lifestyle or if you may need to move because of a job change or other factors. If you do not foresee staying in your home for several years, the amount of equity that you build up over the first year or two may be lost through selling costs and real estate commissions.
Can I Afford to Buy A Home?
Normally, you need to have enough savings to cover a down payment of 5% to 20% of the purchase price plus an additional 3% to 7% of this price for closing costs. If you do not have the down payment, you may be able to qualify for a loan under various government programs that are available.
Before you begin looking for a home decide what you want and can afford. Various factors are considered when a lender qualifies a purchaser for a home purchase including credit history, job stability and the size of the down payment. Prior to shopping for a home you may wish to visit a respected lender to determine the loan you can afford.
Selecting an Agent
Before you select an agent, do your homework. Interview several real estate agents to determine their level of experience in the area you wish to purchase. Check to ensure that the agent is properly licensed. Review any disciplinary actions that may be reflected on the licensee record and assess whether or not that information is important to you in your selection of an agent. Also, ask the agents for the names of past clients and check their references.
Finding Your Home
Before you look for a home, you should determine the features that you need such as the location, number of bedrooms, size of the lot and proximity to stores, schools, hospitals, work and other services such as fire and police protection. You should also determine if there are any special taxes, assessments or homeowners association dues that could affect your monthly expenses.
Inspecting the Home
Once you find a house that meets your specific needs, you should check the electrical, plumbing and structural integrity of the property. Consider hiring a qualified inspector to evaluate the structural aspects of the home you are considering purchasing. By doing this, you are giving yourself the opportunity to negotiate any necessary repairs with the seller. Under any circumstances, buying a home requires maintenance and sometimes unexpected expenses for repairs. When you make a decision to buy a home, remember to include this in your budget.
Presenting an Offer
Decide what you wish to pay for the property. A good basis for this is to determine what other properties in the neighborhood have sold for. Your real estate agent can be a valuable source for this information.
Make sure that your offer contains any contingencies or special conditions that you desire in the contract. This would include your need to qualify for a loan, repairs that you want the seller to complete prior to the close of escrow, as well as pest control inspections, home inspections, home warranty programs, and any other specific items. Remember, if your offer is accepted and thus becomes a binding contract, failure to complete the purchase could affect the return of your deposit.
You should thoroughly review the contract before signing it and make certain that you understand it. If there are portions of the document that you do not understand, you should seek appropriate professional advice. If your real estate agent is unable to adequately answer your questions, you should ask to speak with his or her broker or seek legal advice. Make sure that the offer you sign does not contain any blank spaces that can be filled in after you signed it. Also, avoid giving cash as a deposit or down payment. Instead, always use a check, money order or cashier’s check. This provides a permanent record of the money that you have deposited.
There are a number of disclosures that you are entitled to receive during the course of your purchase. Two of the most important disclosures that you should receive in a residential purchase are as follows:
Real Property Disclosure Statement – This disclosure is completed by the seller and covers the physical condition of the property and potential hazards or defects that may be associated with it. While the seller is principally responsible for the disclosures presented in this document, the agent is also responsible for conducting a visual inspection of the property and disclosing any readily observable defects detected in the process. This document also discloses any special taxes, assessments and other factors that may have a material effect on the value or desirability of the property.
Agency Relationship Disclosure – Your real estate agent is required to provide you with a written disclosure stating whom he or she represents in the transaction. The agent may represent you as the buyer exclusively, or the seller exclusively, or be a dual agent representing both you and the seller. You should carefully review and understand this disclosure as it has a material effect on the level of responsibilities that your agent owes to you.
Depending on the location, age and other factors involved with the residential property that you are purchasing, additional disclosures may be required.
Financing Disclosures – Various financing disclosures are also required in real estate transactions providing you with important details of your loan. In this regard, the two major disclosures required are the Truth in Lending Statement (Regulation Z) and the Real Estate Settlement Procedures Act (RESPA). The Truth in Lending Statement will provide you with important details on the terms and conditions of credit including the amount financed, the finance charge, as well as the annual percentage rate. RESPA requires detailed broker and lender good faith estimates regarding settlement and closing costs to be provided within three days after you apply for a loan. RESPA also requires a HUD Uniform Settlement Statement that provides you with a detailed accounting of actual disbursements and closing costs upon the completion of your loan transaction.
Public Report – In all common interest facilities which have homeowners association dues, as well as in the initial offering of homes in standard subdivisions located outside city limits, a public report issued by the DRE is required. The public report is a detailed statement, which discloses to prospective buyers pertinent facts about the subdivision. The report includes information about utilities, water, roads, soil, geologic conditions, title, zoning, use restrictions, hazards, and the financial arrangements that have been made for the completion of the subdivision.
Escrow and Title
You have a right to negotiate with the seller if you have a preference as to the escrow and title company that will be used in your transaction. The Escrow Company is a neutral third party with the responsibility of protecting the interests of both the buyer and seller. The escrow officer ensures that all terms of the contract as detailed in the escrow instructions have been met and that the appropriate deeds are recorded upon the close of the transaction. The Title Company provides an insurance policy to protect the buyer and the lender against any unknown defects with respect to the title to the property. Normally, the lender will require a title insurance policy as a condition of the loan.
A real estate transaction can be complex and involves many parties and documents. When purchasing a home, you as the buyer should do your homework, be sure to read all documents involved in the transaction and seek professional advice in the event that you do not fully understand any aspect of your transaction.
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